Archive for the 'real estate' Category

Tough Business Decisionss: Inflation or Recesion

It seems like the news is the same as it was a month ago, only closer.  The dollar is still in horrible shape, the price of a barrel of oil can’t seem to stop going up, and people are still defaulting on their mortgages.

The big problem is that all of these factors seem to be worse now.  First of all, the dollar continues to descend against the Euro.  What that tells me is that people who have large sums of money to move think that the US economy is in for some rough times. When your currency goes from under one dollar per euro to over 1.40 per euro in five years, you are in a bit of trouble.  If the euro is already suffering from inflation in the 2% range, the loss of value in the dollar must be much larger.

The price of oil continues to move up.  The simplest  solution is to nuke China to reduce their demand for foreign resources.  The problem is the side effects-  Billions of humans dead.  The economic growth in China continues to be staggering.  The Chinese tend to have an interesting business strategy.  Work your butt of and save.  Even in a country that uses a poor primary business model (communism), the work hard and save strategy seems to work.  They are getting sick of saving and want to buy a piece of the good life.  That includes things that require oil either as a fuel or a feedstock.  Oil hit $92.22 during trading last weak.  The extra production capabilities of OPEC and other such countries seem to have nearly run out.

Last of all, more and more people are defaulting on their mortgages.  The companies involved in real estate are getting clobbered, according to a recent story.  These companies represented a huge part of the boom that helped us recover from 9/11.   Their support in the economy will be missed.

It’s time to tighten our belts.  In a world of ups and downs, the economy is due for a down.  People that have planned a little will do just fine, just like they have always done.  You just have to ask yourself where you are.  If there is a coming depression, how will that work out for you?  If there is high inflation?  I feel like stocks offer some nice benefits.  They go up with inflation over the long term.  If you buy boring high quality stocks, they will weather a recession.  Real estate can have the same benefits.  It holds its value, and you get a good deal on a rentable property, it can also provide some benefits.  Cash does well in one and gets slaughtered in the other, and debt does the opposite.  There is also a chance we could have both.  I hope that things go along well for the next while at least.  Hopefully till I and all my descendants are  dead.  But I am not counting on it.

The question is will the Fed choosing inflation over recession.  One kind of sucks and reduces what the true government debt is, the other one sucks worse and reduces the governments ability to pay off debt.  Tricky.

Foreclosures Up, 1/3 Chance of Recession, Realtors say now is the time to buy!!

The National Association of Realtors is reassuring customers that now is the time to buy.  We are entering a new economy, and this temporary bump in the market is the perfect time to buy with greater selection. 

 According to Yahoo, foreclosures have doubled from last year and are up 36% from last month.  This will give you even more opportunities to buy.  These are fantastic houses that are selling at significant discounts.  Your local Realtor will explain everything to you and take care of this incredibly complex transaction.  These are specialized skills that no one else has, so make sure you pay a realtor 6% to look up something on the internet and drive you from place to place.   They will also contact the lawyer, whom you also have to pay,  for this small commision.  Now there are many naysayers on the news now, but they don’t have the same information we do. 

The market is in a temporary downturn and will come back.  Although Greenspan says there is a one in three chance of recession, you should remember that this is just a temporary downturn. 

The money in your house is just sitting there idly.  You can extract that money through a home equity loan, and you can purchase a rental home.  The selection has never been better.  Your realtor and mortgage broker can work together as an unholy alliance a team to make sure that you buy as much house as you can. 
Faithless naysayers will say that you would be stupid not to learn from what has happened in the last year.  The claim that being mortgaged up to the hilt fully leveraged puts you in a precarious financial situation is untrue.  The truth is that if you get in over your head, the goverment will bail you out.  Trust us.  We are the National Association of Realtors, our source for unbiased information.

If you vote or improve ratings or readership, nothing is your fault!

Today, in the CBS news column FDR Solves the Mortgage Crisis, Andrew Jakabovics pandered to the public with the classic line.  It’s not your fault, it is the fault of big business.

Basically, the theme is that the government should jump in and give mortgages to the people if they can’t get mortgages elsewhere.  The government is encouraging risky behavior by allowing people to reap the benefits of risky moves, while protecting them from the downside. 

I think the government should extent the relief that they have given to those in Vegas.  If we are protecting those who took risky mortgages, we might as well protect those who didn’t do so well in the stock market.  If the stocks drop, the government should give them a tax credit for fifty percent of their losses.  After all, isn’t the security of our retirees of just as much concern as having others live in a home instead of an apartment?  After all, it’s for the children. (Don’t ask me how.) 

It seems that others are very confident of our abilities to repay all of our mortgages based on the exchange rates.  Euro hit an all time high, and the pound went over $2.  Inflation is starting to rear it’s ugly head, as shown by the rapidly falling dollar.  It stinks, but we’ve been bringing this on for a long time.  The US has a bit of a hangover from the mortgage binge, and we have to pay the piper at some point. 

People are also trying to paint the picture of a mortgage market in which people just can’t get a loan, even with great credit.  According to the Wall Steet Journal,banks are tripping over themselves to give conventional mortgages to credit worthy borrowers.  This is just what should be happening.  Bankers should cut risky loans.  They are obligated to do this by their depositors, who depend on them to remain liquid.  Credit Unions, who are very conscious of the fact that they are lending out depositor (basically owner) money have had a fraction of the default rate.

On the radio a couple of days ago I heard a demagogue spouting out bull about how the bankers and evil mortage industy were responsible for this mess.  I assume grocery store owners are responsible for obesity, baseball bat owners are responsible for thuggery, and dell is one the line for carpel tunnel syndrome. 

We have dug ourselves into this hole and it is time for us to get out through thrift, hardwork, and saving.  The plan proposed by Jakabovics is based on spending taxpayer money to subsidize foolishness.  Let’s move in the other direction.

The best evidence that Realtors are RIDICULOUSLY overpriced

Whenever I hear advertisements, I wonder what in the heck they are broadcasting for. I now have some commercials that make me change the station. It seems like commercials used to be more about introducing new products. I guess there are still a few that do that today, but I am getting sick of the ones that tell me I need something.

The ones that bother me the most are the new real estate ads. The power company doesn’t heavily advertise, they know that we need their service and they provide a good value. You don’t here a lot of ads for gasoline. If you have to advertise that much for a service that everyone knows about, what you offer as far as service does not coincide with what you are charging.

Real estate agents were much more valuable 25 years ago. They were the information holders, the only people with access to the MLS. They held the information on what had sold lately and what was for sale. Without them, your main information source was the classifieds and rumors.

Now the internet has spread their information far and wide. Do you want to know what houses have sold for? Use Zillow. The level of expertise of most realtors is not commiserate to their salaries. I remember one ad in which they said you need a realtor, and that being your own realtor would be like having a job for a month. If you have a house that costs $200,000, the commission will come out to $12,000. That is pretty decent pay for one month’s work.

I was just reading freakonomics (picked up a copy at a garage sale). It talked about the difference between how a realtor treats their own house and how they treat the house of their client. They are more willing to hold out for more money on their own houses, and it is based on their cost benefit analysis. If they can sell your house for $190,000 in half the time it takes for them to sell your house for $200,000, they make $2,850 compared to $3,000. 150 bucks is not much extra dough to them, but they just burnt through a good portion of your profit. A lot of the realtors I know are not that intelligent. They aren’t worth that much cash for not much work. The commission is not set in stone. In Australia, commissions go from 2-4%. The National Association of realtors would have you believe that the 6% is sacred.

The other thing that makes real estate agents worth less is the law of supply and demand. During the last three years, half of the housewives in the country became realtors. The mortgage market is in disarray, further reducing the amount of available sales. When you have that many realtors trying to represent fewer sales, you have a lot of negotiating power. It is crazy to simply agree to the 6% without looking at other alternatives. Real estate agents realize this and are now starting to offer reduced fee services. They can’t stay competitive in their old business model, don’t let them take you for a trip. You can have an appraiser come by for $200. The information that the real estate agents sell at so high a price is available on google for the cost of a few hours.

If you want to see how much the real estate industry has your interests, look at the books written by their chief economist, David Lereah. In 2005, he put out Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them. In 2006, he released Why the Real Estate Boom Will Not Bust—And How You Can Profit from It, which is pretty much the same book retitled. He is either a complete fool, or his chief loyalty is to his employer, and his employer wants him to keep those properties changing hands, with a 6% cut to the NAR every time. I wonder how people who took advice from a representative of the NAR are doing right now?

Just my thoughts on an industries that think they are so necessary that they have to air frequent commercials reminding us exactly how necessary they are.